Q1 2025 Earnings Summary
- Strong International Growth Potential: Lululemon's international revenue is growing rapidly, with China Mainland revenue increasing by 52% in constant currency in Q1. The company sees significant opportunity in international markets, aiming for international sales to reach 50% of total revenue in the future. This growth is driven by low unaided brand awareness internationally, providing a long runway for expansion.
- Exceptional Performance in Men's Category: Lululemon is experiencing strong gains in the men's segment, significantly outperforming the overall market and gaining market share in men's apparel. The success is driven by innovative products like the Zeroed In franchise and expansion of Pace Breaker, resonating globally across all markets. The men's business is becoming an increasingly important driver of growth.
- Investments in Omnichannel Capabilities: The company continues to invest in both stores and e-commerce, providing a seamless omnichannel experience. They expect e-commerce to grow slightly ahead of their 15% CAGR target, with stores growing slightly below. Lululemon sees ample opportunity to expand and optimize their store footprint, with new stores showing sales per square foot above the average of $1,600.
- Assortment missteps in the U.S. women's business, such as a narrow color palette and lack of smaller sizes, led to missed sales opportunities and negatively impacted conversion rates, despite positive traffic. , ,
- Markdowns increased by 50 basis points year-over-year in Q1, with expectations of slightly elevated markdowns continuing into Q2, potentially pressuring margins and indicating slower demand for full-priced items.
- U.S. revenue growth was only 2% in constant currency, significantly lagging behind international markets, and the women's market share was flat due to missed opportunities, suggesting potential headwinds in the U.S. market. , ,
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U.S. Growth Challenges
Q: Any structural changes affecting U.S. growth?
A: Calvin McDonald emphasized that there is "absolutely nothing has changed" in terms of growth potential in the U.S., attributing missed opportunities in Q1 to a narrow color palette and inventory issues in women's categories. He remains "as optimistic and excited" about their U.S. growth potential and noted that traffic was positive, but conversion suffered due to assortment gaps. , , -
China Growth Potential
Q: Can you discuss China's performance and outlook?
A: Management is "very pleased" with the business in China, reporting +52% constant currency growth in Mainland China. They see significant runway and no concerns with the competitive landscape, highlighting that they are "still early in our growth journey there." , , -
Inventory Levels and Markdowns
Q: How are inventory and markdowns impacting margins?
A: Inventory was down 15% at the end of the quarter, aligning with expectations. Markdowns increased 50 basis points year-over-year in Q1 due to assortment challenges, but they expect markdowns to be "essentially flat" for the full year. Actions are underway to correct assortment issues in the second half. , -
Competitive Landscape
Q: Has the competitive landscape changed recently?
A: Calvin McDonald stated they haven't seen any significant changes in promotional intensity or competition. He believes missed opportunities were due to internal factors rather than competitive pressures, noting that "competition has always been there" and they continue to outperform where they execute well. , -
Store Productivity and Expansion
Q: Any changes to store expansion plans in North America?
A: Management continues to see "ample runway" for new stores, with productive sales per square foot above the average of $1,600. New stores ramp to mature volumes over 2–4 years, and they see opportunities for growth in both the U.S. and international markets. -
Consumer Behavior Trends
Q: Any changes in consumer purchase behavior?
A: They have not observed fundamental shifts in guest behavior, with no changes in UPT or AUR. The guest remains engaged but is being more selective due to the dynamic environment. Traffic was positive, but conversion was impacted by assortment gaps. , -
Market Share Dynamics
Q: Did you gain or lose market share in women's?
A: Lululemon gained market share in both the U.S. adult apparel and activewear industries. They saw outsized gains in men's, while women's was "flattish" due to missed opportunities in certain categories. -
Omnichannel Strategy
Q: How do you view the balance of stores and e-commerce?
A: They anticipate e-commerce to grow slightly ahead of the 15% CAGR, with stores slightly below. They remain agile, focusing on a seamless experience across channels, and will go where the guest wants to shop.